The interaction of external and internal CSR during COVID-19: a signaling theory perspective

Purpose This study investigates how firms navigate conflicting stakeholder responsibilities during crises. Leveraging the unique context of the COVID-19 pandemic and drawing on signaling theory, it examines how anti-COVID-19 philanthropy (external CSR) and internal CSR (prioritizing employees) jointly influence firm performance. Design/methodology/approach The paper employs a dual-method design, using secondary data from 918 Chinese listed firms' CSR reports, financial databases and survey data from 232 middle managers. Heckman's two-stage model was applied to address potential sample selection bias in the archival study. Findings The results confirm that anti-COVID-19 philanthropy enhances firm performance. For internal CSR, the findings are nuanced: while preserving jobs (employee number growth) boosts performance and amplifies the benefits of philanthropy, an increase in the executive-employee pay gap (a weak internal CSR signal) weakens this positive effect. Sustaining pay levels alone does not show a significant positive impact. Originality/value This study extends signaling theory by revealing a reversed signaling mechanism under crisis conditions, where certain internal CSR actions (like pay growth) can be perceived negatively. In addition, it provides a more nuanced understanding of the internal-external CSR interaction by demonstrating that their joint effect depends on the specific moral prioritization during a crisis.